First test of the bounce off the lows

The chart below is the intraday look at the S&P 500 index. It wasn’t the leader on the downside, but it does reflect the reversal on the day. As you can see the index moved through the 1940 resistance early with relative ease and then the move lower started, closing at the low of the day. The tendency of most investors/traders is to ask why? What changed at 11:30 to persuade investors to sell and take the index down 1.1% from the high of the day? We could talk about the events in Canada or earnings or any number of other items we could extrapolate into reasons for the move. OR, we can just look at this as consolidation in the bounce off the October 15th low. I like the latter as it is exactly what happened on the day, not to mention, today’s reasons for any move in the market will have to face a whole new list of reasons in the morning prior to the open. Unless there was a sustainable event or fundamental breakdown we have to default to the charts and let them be our guide going forward. For now they are showing a consolidation within the bounce move off the low and we will have to deal with plenty of overhead resistance on the chart going forward. Take it one day at a time and leave the speculation to the media.

Chart

Scanning the results of the trading day it is important to note the move in Utilities (XLU) were up 0.6%. Consumer Staples was up modestly as well, but shows some willingness to hold the defensive sectors in light of the move overall on the day. Utilities did manage to break from a reverse head and shoulders pattern clearing the $43.75 resistance level. However, it needs to confirm the move as an upside opportunity going forward. If it confirms, I would take the time to scan the holdings of the ETF/sector to find what stocks show the best leadership relative to the index itself. Duke Energy, Consolidated Edison, PPL and Entergy show promise from a quick scan of the list. Playing follow the leader is a positive way to find opportunities and apply a strategy for investing or trading in the defined asset.

The bounce is still in play based on the charts today and it will be important to find an additional catalyst on the upside that will sustain the move. The fact that started the move off the low, being oversold, is done… now we need a good and rationale reason for the move to extend the upside. In addition to that we will want to see the charts confirm the move technically with volume, relative strength and by holding above support. Now that is not too much to ask by the close of the market tomorrow… is it? As you know, let the market define the trend, leadership and opportunities, our job is to follow where it leads and take advantage of the parts as well as the whole.